Harvard Case - Birkenstock: Exit the Family. Enter a Professional CEO
"Birkenstock: Exit the Family. Enter a Professional CEO" Harvard business case study is written by Morten Bennedsen, Mark Stabile, Brian Henry. It deals with the challenges in the field of Business Ethics. The case study is 7 page(s) long and it was first published on : May 18, 2023
At Fern Fort University, we recommend that Birkenstock implement a phased approach to transitioning from a family-owned business to a professionally managed organization. This transition should prioritize ethical leadership, stakeholder engagement, and transparency throughout the process, ensuring the company's core values and commitment to sustainability remain central to its identity.
2. Background
The case study focuses on Birkenstock, a German footwear company with a long history of family ownership and a strong reputation for quality and comfort. The company faces a critical juncture as the fifth generation of the family seeks to transition leadership to a professional CEO. This decision is driven by the desire to ensure the company's long-term success and growth in an increasingly competitive global market.
The main protagonists are the current family leadership, particularly the fifth generation, who are grappling with the challenges of maintaining family control while navigating the demands of a globalized business environment. They are also confronted with the need to balance the company's traditional values with the need for innovation and adaptability.
3. Analysis of the Case Study
This case study can be analyzed through the lens of corporate governance, organizational change, and succession planning.
Corporate Governance: Birkenstock's family ownership structure has historically provided strong leadership and a clear sense of purpose. However, this model may not be sustainable in the long term, particularly as the family's interests diverge and the company faces increasing complexity. The transition to a professional CEO necessitates a robust corporate governance framework that balances the interests of shareholders, employees, and other stakeholders.
Organizational Change: The transition from a family-owned business to a professionally managed organization requires significant organizational change. This involves adapting the company's culture, decision-making processes, and leadership styles to accommodate the new CEO's perspective and expertise.
Succession Planning: Birkenstock's success in transitioning leadership hinges on a well-defined succession plan. This plan should outline the roles and responsibilities of the family members, the selection process for the new CEO, and the communication strategy for stakeholders.
Stakeholder Theory: The case study highlights the importance of considering the interests of various stakeholders, including employees, customers, suppliers, and the community. A successful transition requires open communication and engagement with these stakeholders to ensure their concerns are addressed and their support is secured.
Ethical Leadership: The new CEO must embody ethical leadership to maintain Birkenstock's reputation and trust among stakeholders. This involves upholding the company's values of quality, sustainability, and social responsibility.
4. Recommendations
Phase 1: Preparation & Planning (6-12 months)
- Establish a Transition Committee: Form a committee comprised of family members, senior management, and external advisors to guide the transition process. This committee will oversee the selection of the new CEO, develop a communication strategy, and address potential conflicts of interest.
- Develop a Detailed Succession Plan: The plan should outline the roles and responsibilities of the family members, the selection criteria for the new CEO, the timeline for the transition, and the communication strategy for stakeholders.
- Assess Corporate Governance Framework: Evaluate the existing corporate governance structure and identify areas for improvement. This may involve establishing an independent board of directors, defining clear roles and responsibilities for management, and implementing a code of conduct.
Phase 2: CEO Selection & Integration (12-18 months)
- Conduct a Comprehensive Search: Engage a reputable executive search firm to identify and assess potential candidates for the CEO position. The search should focus on individuals with proven leadership experience in the footwear industry, a strong understanding of global markets, and a commitment to Birkenstock's values.
- Onboarding and Integration: Once the new CEO is selected, develop a comprehensive onboarding plan that includes introductions to key stakeholders, training on company policies and procedures, and opportunities to build relationships with the leadership team.
Phase 3: Implementation & Monitoring (Ongoing)
- Communication and Transparency: Maintain open and transparent communication with all stakeholders throughout the transition process. Regularly update employees, customers, suppliers, and the community on the progress of the transition and the new CEO's vision for the future.
- Performance Monitoring and Evaluation: Establish clear performance metrics for the new CEO and regularly evaluate their progress in achieving strategic goals. This will ensure that the transition process is aligned with the company's long-term success.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies and Consistency with Mission: The recommendations prioritize maintaining Birkenstock's core values, including quality, craftsmanship, sustainability, and social responsibility.
- External Customers and Internal Clients: The recommendations emphasize open communication and engagement with all stakeholders, ensuring their concerns are addressed and their support is secured.
- Competitors: The recommendations recognize the need for innovation and adaptability to compete effectively in the global footwear market.
- Attractiveness: The recommendations focus on long-term value creation for shareholders, employees, and other stakeholders.
6. Conclusion
By implementing a phased approach to transition leadership, Birkenstock can ensure a smooth and successful handover from family ownership to professional management. This process will require careful planning, open communication, and a commitment to ethical leadership and stakeholder engagement. By prioritizing these principles, Birkenstock can maintain its strong reputation, navigate the challenges of a globalized market, and achieve long-term success.
7. Discussion
Alternatives:
- Maintaining Family Ownership: Birkenstock could choose to maintain family ownership and control, potentially bringing in professional managers to oversee specific areas of the business. However, this option may not be sustainable in the long term, as the family's interests may diverge and the company faces increasing complexity.
- Selling the Company: Birkenstock could consider selling the company to a larger corporation. This would provide a quick infusion of capital and access to new markets, but it would also risk losing control of the company's values and culture.
Risks:
- Resistance to Change: Employees, customers, and suppliers may resist the transition to a professional CEO.
- Loss of Family Values: The new CEO may not fully understand or embrace Birkenstock's core values.
- Conflicts of Interest: The family members may have difficulty relinquishing control and may seek to influence the new CEO's decisions.
Key Assumptions:
- The family is committed to ensuring the long-term success of the company.
- The new CEO will be a strong leader with a deep understanding of the footwear industry.
- Stakeholders will be willing to support the transition process.
8. Next Steps
- Establish the Transition Committee within the next 3 months.
- Develop a detailed succession plan within the next 6 months.
- Begin the search for a new CEO within the next 9 months.
- Implement the onboarding and integration plan for the new CEO within 12 months.
- Regularly monitor and evaluate the transition process and the new CEO's performance.
By following these recommendations and taking a proactive approach to the transition, Birkenstock can ensure a smooth and successful handover to a professional CEO, positioning the company for continued growth and success in the years to come.
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Case Description
The case is about Birkenstock, the renowned German shoemaker, and two turning points in its 248-year history: the owner's decision to bring in a professional CEO in 2012, and the sale of a majority stake to a French-American investment firm in 2021. Founded by German cobbler Johann Adam Birkenstock in 1774, the company had always been 100% owned by the same family and managed by a single descendant, a tradition upended in 2002 when Carl Birkenstock, the CEO and owner, handed over his shares and job to his three sons. Ten years later, unable to agree on strategy and with tensions rising in the family, the brothers decided to bring in a professional CEO to put the struggling shoemaker back on its feet. Under the new manager, sales of Birkenstock sandals increased to such an extent that the company attracted the interest of investors. Meanwhile, one of the sons sold his shares to his two brothers, who then instructed the CEO to find a buyer. Offered the opportunity to become billionaires overnight, they sold the company to a private equity firm backed by the world's largest fortune and owner of LVMH, Bernard Arnault.
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